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Beating street expectations, Infosys has posted strong September quarter results today. It has reported net profit at Rs 1737 crore as against Rs 1488 crore, a growth of 16.73% on quarter-on-quarter basis (QoQ), as per International Financial Reporting Standards (IFRS).
Managing Editor Udayan Mukherjee, just after the announcement of second quarter results, the management spoke on guidance, clientele, attrition, challenges and the road ahead. Infosys is optimistic on short-term outlook and cautious on long-term.
However, the company is concerned about maintaining a healthy operating profit margin (OPM) due to currency headwinds, volatility in the markets and global uncertainties.
Though it is upbeat that currency depreciation has aided margins by 0.8%, there is a growing worry that OPM may contract by 100- 130 basis points (bps) on currency headwinds. On an overall basis, FY11 could see a contraction of over 250 bps, the company informed. In Q2 FY11, its OPM has improved by 190 bps.
The management panel include Kris Gopalakrishnan (CEO and MD), SD Shibulal (COO) V Balakrishnan (CFO), Ashok Vemuri (Head-Banking and Capital Markets Head-Global Strategic Sourcing), Chandrashekar Kakal (Head-Enterprise Solutions), Subhash Dhar (Head-Communications, Media & Entertainment), BG Srinivas (Head-Manufacturing), TV Mohandas Pai (board member), Swaminathan D (CEO, Infosys BPO) and Stephen Pratt (CEO, Infosys Consulting).
Gopalakrishnan said, ?Though the economic environment continues to be challenging, we have leveraged our client relationships, solutions and investments to grow faster in this quarter. There are significant drivers for investment in Information Technology since any transformation program to build tomorrow's enterprises requires these investments to be made.?
Our operating margins improved during the quarter while our liquidity position was further strengthened with cash and cash equivalents reaching USD 3.9 billion," said Balakrishnan.
"However, the continued global economic uncertainty, coupled with extreme currency volatility, is a concern for the industry," added Balakrishnan.
The company has said that it will hedge revenue for the next two quarters. Due to stable pricing environment, it has achieved volume growth at 7.2% in second quarter.
On clientele, Infosys said that discretionary spending is rising among clients and they are confident about next two quarters.
The management said,?FY11 client spends may be flat with marginal upward bias.? It is seeing a 0.2% impact on revenue due to rising costs.
Here is a verbatim transcript of Infy management?s exclusive interview on CNBC-TV18. Also watch the accompanying video.
Q: Good numbers but could you have done a bit more with the rupee EPS or you chose to be conservative because of the recent appreciation?
Gopalakrishnan: The rupee has moved significantly in the last few weeks and the foreign direct investment flows will decide, which way it is going to go. It is going to continue to be very volatile. We have just taken whatever is the exchange rate at the end of the quarter projected forward based on the numbers we have and that is how we have come with this number. So if you look at the dollar guidance?it is up.
Q: Before we talk about the business trends?this topline growth that you are seeing for the current quarter?can you split it between volume growth, price growth and currency growth?
Balakrishnan: The volume growth is 7.2%. In Q1 it was 7.6%, pricing went up. The revenue productivity has gone up by 3.2% mainly due to the business mix. We think the pricing environment is stable?it is not going up, it is not going down. So it is mainly volume growth, which continues to be very strong and of course the currency moved in our favour, the cross currency has moved in our favour, also the rupee-dollar rate. Even though we have seen the decline at the end of the quarter, rupee has depreciated close to 2% in this quarter. Overall, I think 10.1% dollar revenue growth, 12% rupee growth this quarter.
Q: So 7.2% is volume?no pricing improvement at all?
Balakrishnan: Pricing improvement is 3.2%.
Q: In constant currency how much?
Balakrishnan: About 2.5%.
Q: What do you think in terms of?because you have upped the dollar revenue guidance to 25% now?are you genuinely feeling more confident about spends and what you are hearing from your clients?
Gopalakrishnan: Clients are spending on technology and discretionary spend is happening. We have seen traction in our large deals. We have seen traction in our transmission deals. This has been the best quarters for transformational and large deals. We have won USD 100 million plus large deal this quarter. We are also seeing that clients are looking at the future. They are very clear about where they want to invest, which is a sign of confidence. They are investing in things like how do we move their business to emerging markets; how do we look at digitisation of entire the consumer space and things like that. They have specific reasons for doing these investments. They are also outsourcing more, which is also beneficial for us. There is confidence there.
The only thing, which is a cause for concern is that they are still confident about the next two quarters?what is going to happen beyond that etc is still an uncertain environment and that?s the reason why the budget for next year before we can confidently say yes we have crossed the chasm. Actually this is the first quarter where we are adding USD 100 million plus revenue sequentially, organically.
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